Bitcoin Price Drops, Recession Fears Accelerate, Wall Street Titan Says Institutions Will Go ‘Head First’ into Bitcoin, Govn't Paying $3 Billion/Day in Interest Expense
News Block #52 (09/05/2024)
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Bitcoin Drops as Recession Fears Accelerate
Bitcoin doesn’t like September, and September doesn’t like Bitcoin.
Historically, September has been Bitcoin’s worst-performing month, with an average return of -4.5% over the last decade. This September is starting out no differently, with Bitcoin falling below $57,000 after Labor Day weekend.
Lately, it seems like as soon as Bitcoin gains some momentum and rises above $60,000, the market deflates, and Bitcoin sinks back below it once again.
It’s now been several months of Bitcoin chopping sideways around these levels, and you can sense that investors are starting to get tired of it.
One potential reason that explains Bitcoin’s decline is negative economic data coming in, making investors nervous.
First came what James Lavish described as “extremely poor” ISM manufacturing data. The ISM manufacturing PMI is based on a survey of purchasing managers in the manufacturing sector. Simply put, a PMI over 50 indicates there’s an expansion in manufacturing activity, and below 50 means there’s a contraction.
The latest PMI came in below expectations at 47.5 points and has now contracted for 5 consecutive months.
And when you dig deeper into the survey data, things only seem to get worse.
New orders – these are orders placed by customers for goods or services that have not yet been produced or delivered – have dropped to a 15-month low. That’s not a sign of a booming economy.
On the flipside, the data also showed that inventories are rising. This means that manufacturers are producing more than what’s being sold. This is just another sign of low demand. People aren’t consuming, and our economy depends on strong consumption.
This has a nasty second-order effect—with more inventory building up and needing to be sold, a manufacturer is incentivized to slow production, which can lead to layoffs and less business investment. Both are net negatives for the economy.
But low demand isn’t the only thing manufacturers are dealing with. They are also navigating a rise in costs. The latest survey showed that they’re paying more for labor, raw materials, and shipping. If manufacturers aren’t selling as much and are paying more for their costs at the same time, then you can see how this can become a toxic mix very quickly. As Lavish notes…this is stagflation.
Another data point that has investors worried is that construction spending declined in July and came in below market expectations.
U.S. construction spending is an important sign of the economy's direction because it shows how confident people and businesses are about the future. When spending goes up, it usually means they expect long-term growth, while a drop signals concern or an economic slowdown.
Construction also affects other industries, like manufacturing and real estate, making it a key part of the overall economy.
Both the weakness in manufacturing and the drop in construction spending caused stocks and Bitcoin to fall as fears of an economic slowdown gripped the market.
That’s what the Atlanta Fed’s GDP Now model is estimating too. The model has reduced real GDP growth a full percentage point lower over the last month alone.
All eyes will be on the Fed in a couple of weeks when many expect it to cut rates to help give a boost to an economy that appears to be losing steam.
As we discussed last week on The News Block, cutting rates generally occurs in response to a weak economy and has sparked asset selloffs in the past. Will it be the same this time around? We’ll be watching.
Wall St. Titan Says Institutions Will Go ‘Head First’ into Bitcoin
Although Bitcoin’s price has been bouncing up and down lately, many of its fundamentals only continue to climb.
Bitcoin’s hash rate briefly hit an all-time high of 742 EH/s this week. The total amount of computing power used to secure the network has never been higher.
Also, the amount of monthly transactions on the network recently hit all-time highs this summer.
Lastly, the number of addresses holding at least 0.1 bitcoin is currently sitting near all-time highs.
It appears that people have been taking advantage of this sideways price action to stack.
And it’s not just small holders buying. One of the biggest stories of 2024 has been Bitcoin adoption accelerating on Wall Street. The approval of the ETFs was a milestone moment for the industry and took Bitcoin into a new era of its adoption – the institutional era.
CEO of $13 billion firm Cantor Fitzgerald, Howard Lutnick, discussed this in a recent video he posted on X, and in it, he reminded Bitcoiners to zoom out and be hopeful of its future: 👇
As Lutnick said, over the last few years, Bitcoin has made a lot of progress, but a lot of work still needs to be done before all these institutions dive in head first. But when they do, strap in.
One of my favorite websites for tracking the institutional adoption of Bitcoin is bitcointreasuries.net brought to you by Coinkite. It tracks the number of institutions holding Bitcoin. I love it because a few years ago, the list only contained a handful of companies, but today, it contains dozens of companies, funds, and even governments. It shows how much progress Bitcoin has made.
In fact, a new research report from River found business Bitcoin adoption has exploded. Over the last four years, businesses have grown their bitcoin holdings by 587%!
River estimates that businesses now hold around 3.3% of Bitcoin’s total supply.
When you consider the sheer amount of fiat these institutions control and the fact that there will only ever be 21 million bitcoin, Bitcoin’s scarcity is really put under the spotlight.
Michael Saylor and the MicroStrategy team recently released Bitcoin24, an open-source model that allows any individual, nation-state, corporation, or financial institution to run the numbers and forecast Bitcoin’s adoption and growth over the next 21 years.
Want to know where Bitcoin’s price could be in 2045 if it takes 20% market share from bonds, 10% from real estate, and 80% from gold? Well, now you can easily estimate it, thanks to the team over at MicroStrategy.
I highly suggest people download and play around with the model. It’s easy to get bullish when you see how much Bitcoin could benefit from even a small percentage of these nation-states, corporations, and large financial institutions getting involved.
Leave it to a couple of billionaires in Lutnick and Saylor to remind us to stop staring at the price chart and focus on Bitcoin’s improving fundamentals and increasing adoption.
Although Bitcoin will continue to fluctuate in the short term, in the long run, all of this new institutional demand that’s on the horizon will only push the price in one direction…higher.
Government Paying $3 Billion per Day in Interest Expense
Alright, finally – let’s take another look at the U.S.’s debt problem.
The national debt is now more than $35.2 trillion and continues to rise rapidly. For some context, if you divide that debt up per taxpayer, that equates to $268,000 per taxpayer.
Have you seen U.S. Representative Thomas Massie’s pin that’s a real-time updating debt clock? He wears it on his lapel in Congress to track the national debt so that it “instills anxiety into his colleagues.” Massie is a politician that is focused on the real problems facing our country and I wish more of our politicians were like him.
But despite the debt climbing to astronomical levels, our politicians continue to spend and spend and spend.
Apollo Global’s Torsten Sløk recently crunched the numbers and found that the U.S. government now pays out, on average, $3 billion in interest expenses per day, including weekends.
To go one step further, even if the Fed cuts rates by a whole percentage point, it would still incur $2.5 billion in interest expenses per day!
It reminds me of this absurd Financial Times article I recently read, in which the author slammed Trump’s plan to adopt a Bitcoin strategic reserve because…get this…our unmanageable debt and large budget deficits already don’t inspire confidence in the dollar. As he put it…the dollar is already losing its luster, so why introduce a viable alternative now?
He goes on to argue that the government can’t control Bitcoin, and politicians can’t print more of it to finance campaign promises or forgive student or medical debts. Yeah! That’s kind of the whole point!
He ends the article by ironically saying, “Bitcoin is not going to make America great. What will help this country continue to be great is getting our debt and deficits under our control.”
On the contrary – a return to sound money policies is exactly what will make America great again. Without that, nothing will stop politicians from continuing to add to the debt, and the interest expense will only grow from $3 billion per day to $5 billion to $10 billion.
Ultimately, as a treasury reserve asset, Bitcoin could act as a constraint on reckless government spending and could finally help the U.S. get its finances under control. And that’s something a lot of us would eagerly vote for.
Until next week, keep stacking.
- Sam & Nat
PS - We’re throwing a half-day Bitcoin seminar at the Ritz Carlton in St. Louis on September 14th. Come and join us for a day of Bitcoin and networking. This is the perfect event to bring friends and family members to learn more about why everyone should be saving in Bitcoin today.
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